It is common knowledge that some companies are more attentive to social responsibility than others, but does that give them any advantage over their rivals? In order to answer that question we need to have a look at the importance that corporate social responsibility plays today in modern business. The first thing to understand is what Corporate Social Responsibility (CSR) is. According to Cambridge online dictionary CSR is ‘the idea that a company should be interested in and willing to help society and the environment as well as be concerned about the products and profits it makes’. In other words CSR is the responsibility of an organization for the impacts of its decisions and activities on society, the environment, the planet, as well as its own prosperity and profit. The idea of CSR was introduced as early as 1942 by Peter Drucker, who believed that companies should pay attention to social aspects apart from financial ones. During the late 1960’s and 1970’s, CSR came forth as a top management concern in both the United States and in Europe, during the 1980’s CSR gradually weakened its importance only to top the agenda again in the late 1990’s.
In 1998 western advises emphasized that “because of the forces at work, building deeper and more strategic relationships with customers, suppliers, employees, communities and other stakeholders (the corporate eco-system) can become central to competitiveness and even survival…this brings us to the increased importance of CSR” (Palazzi and Starcher, 1998).Research reports that not only altruism motivates corporations to pay attention to social responsibility, but also financial reasons. There is evidence to indicate that strong commitment to ethical values is dictated to companies by current trends in business. For example making ethical choices may result in better reputation for a company than unethical ones.
It is only natural that well-being of company’s staff means lower stress for the management and other employees. There is even a viewpoint that ethical behaviour enhances leadership. Furthermore, when it comes to social responsibility, businesses should take into account not only the needs of their stockholders, but also the needs of society as a whole because consequences of ignoring rules and regulations, or causing damage to the environment, may prove to be more damaging than following them in the first place.
But does all this prove that ethical companies have been shown to be more profitable? Various surveys found that social responsibility gathers ‘greater legitimacy for the organisation and enhanced ethical congruence with stakeholder expectations’ (Wood, 1991; Zenisek, 1979). If CSR activities are developed and implemented strategically, they can improve business and community conditions (i.e., enhanced corporate reputation, reduced risk, better stakeholder relations) by ‘…focusing on the achievement of both corporate and social goals and recognising the broad groups to which business has an obligation’ (McAlister et al., 2005: 4).There is increasing evidence that provision of more socially oriented job and better life quality both have a direct influence on financial results as this means that the staff gives the company more productivity, innovation, quality and reliability, as well as more competence and commitment at all levels. “The 2011 Deloitte Volunteer IMPACT Survey showed a direct correlation between volunteer efforts and employee satisfaction” (Lowery, 2012).By way of example it is a good idea to have a look at Google.
Lately, Google has topped the Global CSR reputation rankings due to their commitment to the greater good and positive view on ethical and moral values and, most importantly, environmental responsibility. “Google’s reputation as one of the top 100 places to work is bolstered by their reputation as one of the premier socially conscious organizations; it’s no wonder 20 percent of millennials say they want to work at Google” (Moldavskiy, 2016). It is also needless to say that Google is one of the most successful modern organisations which only proves the correlation between their SCR policy and their success. There is also growing evidence that companies which pay greater attention to environment also are able to show better financial results to their shareholders. For example, general Motors must satisfy communities’ interests in the sustainability and minimization of the environmental impact of the business. Satisfying such interests contributes to General Motors’ fulfilment of its corporate responsibilities, leading to the achievement of corporate citizenship.
“General Motors is a major firm in the global market whose approach involves sustainability programs that address relevant concerns regarding the environmental impact of their operations. The resulting unified corporate social responsibility strategy facilitates GM’s corporate citizenship through suitable programs that benefit stakeholders and the business alike” (Meyer, 2017).It goes without saying that a company’s welfare is closely connected with the wellbeing of the surrounding society. Community-oriented organisations cannot meet their financial goals in locations where the society has a low quality of life. This means that such problems as drug abuse, poverty, crime, low-standard education and unemployment can have a huge and dramatic effect on business. Traditionally these problems were considered to be solely the responsibility of the government. Modern business environment has changed that and today CEOs of large organisations are faced with the necessity to address these problems in order to improve their business.
There is increasing evidence that SCR has a positive impact on financial results. By way of example we could name the prices of the shares of companies with high level of social responsibility. “The “Domini 400 Social Index” is an index of the share prices of 400 common stocks of American companies which were chosen based on their performance on environmental and social performance screens” (Palazzi and Starcher, 1998).The Havas Media Lab conducted a study to identify the companies with the most meaningful CSR. Havas Media then used the results of that study to create The Meaningful Brand Index (MBi).
‘The study found a direct correlation between brands’ MBi scores, and how attached consumers are to those brands’ (Meyer, 2017). Therefore it is clear that organisations which focus on identifying the needs of their customers are much more profitable.According to Armand Feigenbaum, the developer of “Total Quality Control” concept, “companies which have successful quality programmes have a 10% cost advantage over competitors: fewer defects mean less rework and wasted management time, lower costs, and higher customer retention” (Feigenbaum, 2009). It looks like market leaders in quality customer management are growing with a faster pace than companies that don’t take this aspect of business into account which definitely proves that quality relationships with customers directly influence the return on investment and the company’s market share.
Another popular opinion is that Corporate Social Responsibility is a waste of time and effort for modern business. In order to understand what that belief is based on we need to try to find out any negative impacts of CSR on organisations, as well as any cases of low level of CSR within large businesses. According to The Harris Poll 2017 Reputation Quotient, top 10 socially responsible companies are: Wegmans, Publix Super Markets, Amazon.com, Tesla Motors, USAA, Lowe’s, UPS, L.L.
Bean, Walt Disney Company, Whole Foods Market. The bottom 10 socially responsible companies are: AIG, Bank of America, Volkswagen Group, ExxonMobil, BP, Takata, Halliburton, Goldman Sachs, Wells Fargo & Company, Monsanto. As can be seen from the rankings, the world’s market leaders can be found both at the top and at the bottom. Does that mean that CSR really doesn’t play any role in modern business after all? Of course, one of the issues connected with social responsibility is whether CSR has a negative impact on a company’s economic performance. Although previous research demonstrates at least a modest correlation between CSR and firm profitability (Orlitzky, Schmidt, and Rynes 2003), marketing research in the CSR field reveals that the influence of CSR activities on consumer behavior is complex.
For example, mediators such as consumer trust (e.g., Castaldo et al.
2009; Pivato, Misani, and Tencati 2008) and attributions (e.g., Ellen, Webb, and Mohr 2006) are important elements behind consumer support for firms that engage in CSR activities. (Peloza and Shang (2011) propose that stakeholders’ reactions to CSR activities vary because different activities provide different sources of value for stakeholders. For example, a CSR activity can create other-oriented and/or self-oriented value depending on whether the value is related to some relevant other or whether value directly benefits the self. A company’s charitable donation can enhance other-oriented value while a hybrid vehicle can enhance both other and self-oriented value.Surprising as it may seem, although consumers claim that they are willing to pay premium price for fair-trade coffee (De Pelsmacker, Driesen, and Rayp 2005) – seemingly because they identify with fair trade organizations and what they stand for – sales of fair trade coffee suggest that many of these same consumers do not choose fair trade when purchasing.
Obermiller’s finding of expected inferior taste of fair trade coffee suggests that consumers view other-oriented value (i.e., subsistence pricing paid to farmers) as created at the expense of self-oriented value (i.e., taste). Previous findings that CSR attributes can lead to consumer aversion are extended here and are labeled as the backfire effect of CSR activities.
The backfire effect occurs when consumers support a CSR activity and identify with the firm behind the activity, but avoid the firm’s products because of that CSR activity (Obermiller, Burke, Talbott and Green, 2009).On the negative side of CSR its impact on Shareholder Interests can be named. Corporate social responsibility usually means changes to a number of processes in company’s operations. For instance, businesses may need to hire additional staff to be in charge of CSR activities. This requires extra cost, and here it is important to understand that those extra costs are paid with the money coming from the shareholders.
Another drawback of CSR is that sometimes it can have a negative influence on corporate reputation. While many organisations follow CSR practices in order to improve their public image and their goodwill, these practices may sometimes require publishing of information which may lead to an effect of an opposite nature. For instance, in 2003, as part of its CSR policy, Coca-Cola decided to publish a report about chemicals found in its products. ‘This report had an immediate short-term negative effects on the company’s revenue, according to a peer-reviewed article published in the Utrecht Law Review, with sales dropping by 40 percent in the two-week period following the report’ (Evans, 2017.)